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A balanced-budget provision is expected to be approved by the end of February, according to recent changes to article 81 of the Constitution. How will the new provision work? Despite the complexity of this issue and tight deadlines, we don't know very much about this aspect, even if the provision is a crucial step toward reassuring the markets that a balanced budget will remain a key priority in the next legislature.

One of the most delicate issues is the creation of an independent authority that, based on the new constitutional law, will be responsible for analyzing and inspecting public finances so as to ensure the respect of budget laws. For example, the new authority is likely to have to calculate the impact of the economic cycle or other unforeseen events over the budget and to evaluate the predictability of estimates included in public finance measures, in addition to assessing the long-term sustainability of public finances.

Over the years, many countries have assigned independent authorities the task of assessing the sustainability of public finances to ensure respect for budget goals. Unlike in monetary policy, there isn't a single model but several different institutional models. The Netherlands relies on an authority that is part of the government, similar to our General Accounting Office, but has developed a tradition of great independence and has acquired so much external visibility that during electoral campaigns it evaluates the programs of political parties. The United Kingdom has recently created a government agency whose actual independence is still evolving. In other countries these authorities report to parliament rather than the government. In the U.S., where Congress has a very important and independent role, the Congressional Budget Office (CBO) has a staff of 250 people and performs crucial analytical, evaluation and communications functions over everything related to public finances. But even a parliamentary system like Canada’s has created an authority, connected with Parliament, that is more agile than the CBO and is responsible for monitoring and evaluating public finances. Other countries, like Sweden, have created an independent commission that responds directly to public opinion, not only to parliament and the government.

Despite these different approaches, international experience shows that in order to be effective these authorities must have a few indispensable characteristics. First, they must be independent from political pressure and from the government in particular. Second, these very complex tasks require adequate resources. Third, analyses must be timely and pertain also to provisions whose approval is pending, and not only to final balances. Fourth, authorities must communicate in a simple and transparent manner with public opinion too, and not only with the government and parliament.

These characteristics help us understand the shortcomings of Italy's existing structures. The General Accounting Office, which has adequate resources and the right kind jurisdiction, is not sufficiently independent from the government. The Court of Audit, which is more independent, analyzes mainly final balances, and its analyses are formal or juridical. The court is not responsible for evaluating in a timely fashion the economic impact of public finance decisions. It’s because of this institutional structure that Italian public finances hold a negative record of opacity and incomprehensibility. That’s also why evaluations and estimates pertaining to public finances are not traditionally very reliable in Italy.International experience also shows that the main obstacle to creating new monitoring authorities for public finances is the hostility of existing authorities, which are unwilling to lose their influence. That’s likely to happen in Italy. The General Accounting Office could fear the creation of a rival ready to dismiss its estimates. And the Court of Audit may see a reduction in its role in budget certification.

It’s also easy to predict which kind of arguments will be used to defend the status quo. Some will argue that in a phase marked by austerity and cuts we should avoid doubling what already exists. For this reason, the main risk the new authority is exposed to is not being provided with enough resources. Should the law limit itself to strengthening the Senate’s budget office by turning it into the new authority required by the Constitution, we would have missed a unique chance to deeply reform the existing situation. In fact, there are plenty of human resources to draw from to create a credible and authoritative institution, starting with the staff of the Bank of Italy.

One of the main accomplishments of the Monti goverment have been to consider a rigorous budget a priority and to make this goal credible. In order for this credibility to survive, we must change our institutions, and not only at a superficial level.